Smith & Wesson pays $2 million to settle SEC corruption charges

Smith & Wesson Holding Corporation has agreed to pay $2 million on July 28 after the Securities and Exchange Commission accused the company of offering international clients bribes in exchange for law enforcement and military contacts.

According to the SEC’s order, Smith & Wesson violated the Foreign Corrupt Practices Act when its international sales staff bribed foreign and government officials between 2007 and 2010 and in return the Massachusetts company profited — at least once — by more than $100,000 before the unlawful practice was identified.

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit.  “When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

The U.S. enacted the FCPA in 1977 to prohibit publicly traded companies and their officers from illegally obtaining or retaining foreign business.

The SEC cited a handful of examples in its order where it says Smith & Wesson greased the wheels for financial gain.

The SEC alleges that in 2008 Smith & Wesson officials hired a third-party agent in Pakistan to give a police department $11,000 in guns, in addition to cash payments. As a result, Smith & Wesson sold 548 pistols to Pakistani law enforcement for $210,980, making a profit of $107,852.

In 2009, Smith & Wesson attempted to win a firearm contract with Indonesia police. In that instance, head salesmen knowingly approved improper payments for a third-party agent and went a step further by writing off the improper spending as “testing” in the books.

Also in 2009, Smith & Wesson allowed a third-party agent to make improper payments to Turkish officials in an effort to sell handcuffs to police and firearms to the military. Ultimately, Smith & Wesson was outbid for the first contract and the other was canceled.

Similarly, Smith & Wesson made efforts in Nepal and Bangladesh to secure contracts — by using third-party agents to bribe government officials — but the bids were also unsuccessful.

While Smith & Wesson has agreed to the settlement, it has not admitted to nor denied any wrongdoing.

“We are pleased to have concluded this matter with the SEC and believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders,” said James Debney, Smith & Wesson president and CEO. “Today’s announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us.”

Upon learning of the FCPA issues, the company conducted an internal investigation, fired its entire international sales staff, ended pending international sales transactions, and re-evaluated the markets in which it sought international sales.

Total, Smith & Wesson must pay $2,034,892 to the U.S. Treasury. That sum includes $107,852 in disgorgement, $21,040 in prejudgement interest and a civil monetary penalty of $1,906,00.

In addition to the $2 million settlement, Smith & Wesson must report to the SEC on its FCPA compliance efforts for a period of two years.